Proforma credit recovery requires prior notice and natural justice before refund or demand can be enforced.

Recovery of proforma credit treated as wrongly availed could not be ordered without notice under Rule 56A(5) and compliance with natural justice. Although the substantive conditions for taking credit were satisfied, the application under Rule 56A(2) was filed late and the delay did not qualify for condonation under Rule 56A(2B). The credit was nevertheless treated as incorrect only because of that procedural lapse, and the demand was raised directly in the condonation order without the required recovery notice. The demand was therefore unsustainable and was set aside.

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Issues: Whether the demand for recovery of proforma credit, treated as incorrectly availed, was sustainable without service of notice under Rule 56A(5) of the Central Excise Rules, 1944.

Analysis: The substantive requirements for taking proforma credit had been complied with, but the application for permission under Rule 56A(2) was filed belatedly. The delay did not fall within the limited condonation category under Rule 56A(2B). Even so, the credit was treated as wrongly taken only because of the procedural lapse. For recovery of credit allowed on account of error, omission, or misconstruction, Rule 56A(5) required a notice to the assessee within the prescribed time and observance of the principles of natural justice before recovery could be ordered. The demand was raised directly in the condonation order without such notice.

Conclusion: The demand was not sustainable and was set aside. The appeal was allowed on this ground.

Ratio Decidendi: Recovery of erroneously allowed or incorrectly availed proforma credit cannot be ordered without prior notice and compliance with the procedure prescribed for recovery, even where the initial procedural requirement for taking credit was not met.

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